ITC: Creating Value for the Tribal Poor
Economic liberalisation threw up very serious inadequacies across the entire value chain of the Indian paperboards industry. The industry was faced with severe shortages of fibrous raw material and cost effective energy. Acute scarcity of wood-based raw material, which accounts for nearly 45 to 50% of the cost of production, led to dependence on imports for pulp requirements. On the other hand, years of unsophisticated demands of an overly regulated economy had led to mushrooming of mills with obsolete technology, based entirely on recycled fibre. Your Company’s paperboards business, although somewhat better placed being an integrated mill, was no exception. It could not match the world-class quality required for packaging of ITC’s consumer products, thereby necessitating large scale imports of paperboards. Your Company was therefore faced with one of three strategic choices: (1) exit from the paperboards business and import paperboard requirements or (2) confine activity to paperboard manufacture, with pulp requirements being imported or (3) embrace the challenging task of engaging aggressively with the wider value chain to make it internationally competitive. It is evident that these choices represented an ascending order of risk. There was all-round pressure favouring the option of least risk, supported by the conventional wisdom of sticking to the knitting, a compelling necessity in mature and developed economies.
Flowing from its vision and character, and against all odds, your Company chose to not only invest towards acquiring international competitiveness in quality and cost of manufacture of its own mill, but also to extend its engagement across the fuller value chain. Pulling together the resources at your Company’s disposal, ITC’s insights as a substantial consumer of value-added paperboards were leveraged to support technology upgradation and modernisation of the mill. A biotechnology based research programme that was on a relatively modest scale at that time, was leveraged to convert degraded, private wastelands in the economic vicinity of the mill into productive sources of fibre through a social farm forestry programme. Such a strategic option entailed long gestation and daunting uncertainties. There were periods of negative cash flows, followed by periods of sub-optimal return on investment. Unfazed, your Company stayed the course. The strength of your Company’s values and courage enabled the conversion of deep adversity into a sustainable economic opportunity for a sizeable section of India’s rural poor.
Today, your Company’s paperboards business is the decisive leader in the Indian market, with value-added products now constituting nearly 50% of sales. The product footprints extend to several markets in Asia, Africa and the EU, earning about Rs. 100 crores in foreign exchange annually, besides conserving about Rs.120 crores through import substitution. Your Company’s initiatives in energy management earned national awards for excellence in 2002 from the Government of India and the Confederation of Indian Industry. The modernised pulp mill, besides enhancing competitiveness and substituting imports, also enables the production of elemental chlorine free pulp. It is the only one of its kind in India, thereby setting world-class standards of environment friendly technology.
Your Company’s social and farm forestry programmes so far account for more than 35 million saplings planted over 16,000 hectares. Societal value has accrued through increasing forest cover, enhancing contribution to restoration of ecological balance and above all, providing sustainable employment to nearly 160,000 people in some of the most remote tribal regions of the country with related multiplier impact on the economy.
Your Company has traversed a long way in the journey towards global competitiveness, and continues this journey in pursuit of receding targets. R&D efforts continue to be directed at increasing the utilisation of hardwood and other indigenous fibrous material as a progressive substitute to imported softwood. The tangible value so created for society and shareholders can be multiplied manifold by scaling up this unique endeavour. Your Company aspires to progressively attain leadership in the Afro-Asian region in the not too distant future, with growing presence in international markets and over 40% share of the domestic market. Such market strength would fuel ITC’s social farm forestry programme which aims over the next ten years to bring into productive use over 100,000 hectares of private wasteland by planting nearly 600 million saplings. The programme will, on one hand, make procurement of industrial timber exclusively from sustainable sources a reality, and on the other hand, imply direct and indirect rural employment for 1.2 million, besides carrying the prospects of making ITC a carbon positive enterprise.
ITC: Adding value to Indian Agriculture
Your Company’s engagement with the agricultural value chain spans many a crop, encompassing buying, value addition through processing and exports. A host of factors – not the least of which are fragmented farms, overdependence on monsoons, and lack of sophisticated inputs and farming practices – if not dealt with in a timely manner threaten to undermine the competitiveness of Indian agriculture and in turn those who use Agri-inputs to serve their markets, such as your Company. Just as the issues related to Indian agriculture are well known, the solutions have also been well articulated. Implementation of solutions requires concerted action involving several entities. Creative use of information technology through the e-Choupal initiative has enabled your Company to bring together diverse agencies, each with specialised competencies, in a bid to empower the Indian farmer, thereby setting the basis for a much higher order of value generation and sharing.
Any endeavour that engages with the farming community needs to cognise for the unique characteristics and structure of the Indian agricultural sector. Indian agriculture is synonymous with the small farmer, who cultivates on an average less than 1.5 hectares. It is an accepted prospect that the knowledge residing in the Indian agricultural research system, if effectively transferred to the 156 million hectares of farmland in India, spread across rich and diverse agro-climatic regions, has the potential to not only meet the growing needs of the domestic market, but also be a competitive source for many attractive global markets of the post WTO era. However, the weaknesses arising from fragmented farms, overdependence on monsoons and inadequate rural infrastructure, render the task of unlocking the potential of this sector very complex.
Your Company’s e-Choupal model aims to confer the power of expert knowledge on even the smallest individual farmer by leveraging information technology. By delivering real-time information and customised knowledge to improve farmers’ decision making ability, e-Choupal helps to align farm output to market demands and aims to secure better quality, productivity and improved price discovery. Enhanced farmer risk management capability arising from such empowerment would over time, create a significant economic multiplier.
The model enables a quantum improvement in the cost and quality of extension services overcoming the most important challenge facing Indian agriculture. By aggregating the demand like a virtual producers’ cooperative, e-Choupal also facilitates access to high quality farm inputs at competitive cost.
By creatively reorganising the roles of traditional intermediaries who deliver critical value in tasks like logistics management at very low costs in a weak infrastructure economy like India, e-Choupal ploughs back a larger share of consumer price to the farmer. Besides providing an alternative marketing channel, this model engenders efficiency in the functioning of mandis through competition and serves to conserve public resources that would otherwise be needed to upgrade the mandi infrastructure to handle higher volumes of agri output.
The benefits from e-Choupals testify to the validity of the assumptions of efficiency gains through virtual integration of the supply chain. ITC’s investment in such a valuable e-infrastructure, whilst creating abiding value for the farmer, is in turn placing your Company in a unique position of trust with the farming community as a reliable supplier of goods and services on the one hand, and as a buyer of high quality cost effective farm output on the other, thereby supporting its own competitiveness.
It is your Company’s strategic intent to leverage this unique sourcing strength in conjunction with its traditional capabilities related to branding, trade marketing and distribution to create growth opportunities in value-added branded foods. Growth in the value-added consumer end of the market in turn would grow demand for higher quality agri commodities, thereby opening up remunerative opportunities for the farmers. The e-Choupal rural network, together with your Company’s expanding trade marketing capabilities and state-of-the-art information technology transaction backbone, provide the basis for a low cost, broadband supply chain fulfilment capability for consumer products and services. Such fulfilment capability can be likened to a super highway which can also be used as an effective infrastructural link to align Indian farmers with markets. Your Company is engaged in executing several proof-of-concept pilots in various products and services, like agri inputs and insurance, that could be marketed in rural India using the e-Choupal network. The pioneering e-Choupal business model contributes to creating the market through improved farm incomes, whilst placing your Company in a unique position to reap benefits through its closeness to the potential consumer. Like any infrastructure project, the low cost fulfilment super highway will yield benefits over the longer term, establishing the basis for generating unmatched value by servicing the potential markets of tomorrow.
Competitiveness of Indian agriculture can thus be engendered wherever it is feasible to create a structure whereby the corporate sector’s need for creating shareholder value can be enmeshed with that of the farming community in a mutually supportive and interdependent partnership.
ITC: Contribution to Water Resource Management
ITC’s integrated watershed development initiative is a key intervention to address moisture stress in some of the more acutely affected, drought-prone districts of the country. This model is in its infancy and is aimed at laying a foundation for a significantly larger contribution to conserving societal resources. It is not well known that in the absence of infrastructure to hold water that is otherwise available in plenty, 67% of the cultivated area in the country faces severe moisture stress for 5 to 10 months a year. These drylands contribute as much as 45% of the nation’s food basket - where crop production is low, unstable and highly vulnerable to seasonality. Growth in agriculture through improved yields is thus closely tied to availability of water.
In the economic vicinity of its business locations, your Company, assisted by select NGOs, is engaged in bringing nearly 5,000 hectares of degraded land every year under a soil enrichment and moisture conservation programme. Under the programme, villagers are trained to form watershed management groups and build water harvesting structures like contour bunds, check dams, percolation tanks and farm ponds. This programme envisages creation of 1,000 percolation tanks and over 5,000 small water harvesting structures over ten years. These water bodies will provide critical irrigation to nearly 50,000 hectares of farmlands in their command areas. These initiatives will thus secure significant increases in farm incomes through shift from single to multiple cropping, besides cumulatively generating at least 5 million person days of farm labour employment during lean periods.
Your Company’s e-Choupal network provides a unique opportunity to scale up the integrated watershed management programme towards addressing the larger issues of moisture stress and shortage of potable water in rural India. Back-of-the-envelope estimates indicate that servicing the 100,000 villages envisioned within the e-Choupal initiative would entail investment to the tune of roughly Rs. 6,000 crores over the next 7 to 10 years in creating water harvesting structures. It is evident that no single enterprise can by itself support such a large public project. The model being refined by your Company, together with the organisational backbone represented by the e-Choupal network can provide the basis for a valuable public-private partnership mobilising wider societal resources to overcome a challenge, which otherwise might seem impossible.